You probably don't need to worry about the new GST on rent
The GST council recently introduced an 18% GST on rent. Here's who's impacted and if you need to worry.
Here's everything you need to know:
Rent paid for residential purposes:
This was and continues to be exempt from the purview of GST. So if you pay rent for your own housing, there will be no change here.
You can also get a deduction for rent paid if you have income from salary (read about House rent allowance here)
Guest houses or Residential houses for Employees
This is where the major change comes into play. This is now subject to GST at 18%.
Here, the GST will either be borne by the landlord or the company, depending on the terms of the contract. Rents will become more expensive in these cases.
Key exception - Residential use of Proprietor/ Partner: This is not taxable under GST. This still continues to remain exempt.
These were subject to GST earlier and nothing changes. GST continues to be leviable in these cases.
Example - If a company pays rent of 1 lakh per month for residential dwelling of it's CFO, an additional INR 18,000 will be payable as GST per month.
We expect most landlords and companies to renegotiate terms of rent agreements to decide who will bear the cost of this additional GST burden.
We also expect this GST to be a pure cost for the company considering that input tax credit is not available for any personal consumption.
Overall, we expect this to have a small impact on high-end rental transactions in metro cities where companies pay for rent of their employees.
It may be possible to avoid this situation by paying employees an additional allowance for their rent and the employee can simply rent their accommodation themselves.
However, this above arrangement needs to evaluated from a tax perspective to decipher the expected income tax and GST impact.
Need help structuring your rental allowance? Feel free to contact us. Our team of experts is always happy to help!